BERLIN — Thomas Middelhoff, the former head of Arcandor, the bankrupt holding of the still crisis-ridden German Karstadt Department Store chain, has been sentenced by the regional court in Essen to three years in jail for breach of trust as well as tax evasion.
 
Middelhoff was accused of squandering some 800,000 euros, or about $996,416 at current exchange, of company funds on private plane and helicopter flights while the group was fighting for survival. The two most cited examples involve a $91,000 flight to New York in 2008, at the very same time Karstadt employees had their Christmas bonuses cancelled, and helicopter flights from Middelhoff’s home in Bielefeld to the group’s headquarters in Essen because of possible traffic jams.
 
Middelhoff was at the helm of Arcandor from 2004 to 2009, when the group, including its subsidiaries Karstadt and Quelle, went bankrupt.

Karstadt was sold to investor Nicoluas Berggruen for a symbolic euro in 2010, who was widely criticized for not investing sufficiently in the 83-door department store chain. Various turnaround strategies floundered, chief executives came and went, and in August 2014, Austrian real estate holding Signa, which already owned a majority interest in the Karstadt premium, sport and department stores, took over full control of the group.
 
As reported, Stefan Fanderl, former chairman of the Karstadt supervisory board and a trusted colleague of Signa chef Rene Benko, was named Karstadt ceo in late October. He immediately warned of “painful decisions as well as door closures” in attempts to restore the group to profitability.
 
The group’s losses in fiscal 2011/12 and 2012/13 have been pegged at about 300 million euros, or $393.6 million, converted at an average exchange for the two-year period. A triple-digit million loss is further expected for fiscal 2013/14 (end Sept. 30, 2014), sources said.
 
Six Karstadt closures have already been announced in Hamburg, Stuttgart, Gottingen, Cologne, Frankfurt/Oder and Padderborn, and all remaining Karstadt doors are under scrutiny. There are reported plans to cut 2,000 jobs from the current workforce of around 17,000, as well as requiring lengthened working hours for less pay.
 
In addition, there is widespread speculation that Signa, which owns numerous Karstadt properties and is an active luxury shopping center developer, is interested in other retail options for some of the sites. The Karstadt branch on Berlin’s heavily trafficked Kurfürstendamm is already slated to become part of a larger mall complex, construction of which will start in 2015.

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